Singapore overtakes US as most attractive destination for Chinese overseas investments: EIU report

SINGAPORE has surpassed the US to emerge as the top destination for overseas investments from China in this year's China Going Global Investment Index 2017.

According to the report findings which were released on Thursday by The Economist Intelligence Unit (EIU), the US fell behind Singapore to take the second spot, while Hong Kong, Malaysia and Australia came in third, fourth and fifth respectively.

The report, which covered the automotive, consumer goods, energy, financial services, telecommunications and healthcare sectors, said: "Malaysia and Singapore stand out as attractive BRI (Belt and Road Initiative) destinations, providing an investment environment that offers opportunities as well as low levels of risk."

It pointed out that efforts by Chinese companies to develop a global cutting-edge in areas such as electric vehicles, financial technology, and renewable energy are increasingly shaping ODI (overseas direct investment) efforts.

Internet giants such as Tencent and Alibaba were cited as companies that are investing in e-commerce startups across Asia.

Since the previous update to the index in 2015, the report found that developed markets remain the most attractive destinations for Chinese investments, but that developing economies have seen the most notable gains.

In the 2015 report, Singapore took the second spot as the most attractive destination for Chinese foreign investments, while the US came out tops.

Australia was third then, while Hong Kong and Malaysia were in the seventh and 21st positions.

The improvement in rankings of countries such as Malaysia, Kazakhstan, Thailand and Iran were also attributed to China's Belt and Road Initiative, which has created additional incentives for Chinese companies to invest in countries along the route.

However, tensions in trade and foreign bilateral relations with China have caused a drop in the ranking of several major economies, including the US and India. Complicated domestic politics and dimmer economic prospects have lowered the index rankings of Brazil and the UK, the report added.

According to the commerce ministry, Chinese non-financial ODI flows into BRI countries grew by 18.2 per cent, to US$14.8 billion, in 2015. In 2016, however, ODI into BRI countries contracted by 2 per cent to US$14.5 billion, and have also "struggled" in 2017.

In the January-September year-to-date, Chinese ODI to BRI countries fell by 13.7 per cent. "The outlook for China's overseas direct investment appears to have dimmed. After a bumper year for deal-making in 2016, ODI flows from China slumped by over 40 per cent year-on-year in the first 10 months of 2017," the report said.

While noting the steep fall in Chinese ODI in 2017 amid stepped up regulatory oversight of ODI flows, the report said that the drop is likely to be temporary.

The drivers behind ODI in recent years - a desire to tap new markets and acquire brands and technology - remain in place.

Dan Wang, China analyst, EIU, said: "It is still an exciting time to be watching the international expansion of corporate China, but firms should be selective about the regions, countries and industries they choose to engage."